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A Compensation Polarity

One of the most fun aspects of curating of and writing in this publication is when a new challenge reveals hidden connections between seemingly unrelated pieces. This story is an example of a recent occurrence tying these three stories that were published more than a year ago:

About a year ago, I took a stab at synthesizing my thinking on compensation at the time:

I’ve argued that compensation is not a hidden intrinsic attribute of an employee, that should be revealed through market mechanisms, but an attribute of the company and the way it values an addition to the team, based on its compensation philosophy (and therefore, it makes total sense that different companies would value a certain individual very differently). I also suggested that a compensation philosophy is evaluated mostly through a “fairness” lens, in comparison to 4 key drivers: market, personal needs and preferences, contribution/value to the company and company success.

Recently, I ran into a compensation question that I wasn’t able to fully reconcile with the framework: Thinking about fairness in external and internal contexts. Let me try to explain. Companies often times hire employees in roles that have very different market rates. For example, the market rate for a junior software engineer can, in certain markets, be 2–3x the market rate for a junior ops person. From an external context perspective, paying these rates seems fair. But from an internal context perspective, comparing the value the software engineer adds to the company and the value the ops person adds to the company, some companies may find it difficult to reconcile the compensation discrepancy. Some companies may not see any issue here, which is totally ok, but is the less interesting use case to explore.

How can a company that experiences a tension with its values and compensation philosophy in the above situation, reconcile what seems to be at first glance like an irreconcilable paradox between “external fairness” and “internal fairness”?

Polarity management helps us see that this tension between “external fairness” and “internal fairness” is not an either/or problem that needs to be solved, but a both/and polarity that needs to be managed.

Going through a polarity mapping exercise can help a company determine where it currently falls on the polarity spectrum, in which direction it wants to move, and what may be the warning signs that it’s getting too close to one pole or the other.

If that sounds a bit too abstract — fear not! Unbeknownst to me at the time, the Buffer salary formula, is a perfect example of the way one company chose to manage that polarity:

A key element of Buffer’s salary formula is the “role” component, which is the calculated as follows:

Role: (overall base + location base + cost of living)* role value

The first three components: “overall base”, “location base” and “cost of living” are, using the distinction I introduced earlier, “external fairness” components — they are set by the external market rate for the role and other factors driven by the location of the position. However, “Role value” is an “internal fairness” component. The Buffer team explains that perfectly:

We don’t agree with the market salary data all the time (for customer service roles, for example) and so we create our own “role value adjustment” based off what we feel is fair.

So here you go: a paradox emerges in a framework, a new tool helps reconcile it, and a real-world example grounds the whole debate in reality.

Reading through old posts is a humbling experience. It’s hard not to adopt the omniscient hindsight perspective and feel a bit embarrassed by the simplicity (and sometimes dead-wrongness) of some of the posts. But I hope to experience the same feeling as I read this post a year from now. Because it’ll mean that my understanding of the world around me has continued to grow, develop and evolve.